The Earned Income Tax Credit helps lift up the poor without shifting the burden on employers who hire lower skilled workers. I propose that we significantly expand the EITC to combat poverty. Unlike a $15 an hour minimum wage, it wouldn’t create a negative effect on employment. Since it requires people to work to be eligible for it, we also wouldn’t have to be concerned that it would encourage laziness amongst the poor.
This seems like a sensible, pragmatic, centrist solution. Unfortunately, I don’t see this happening in our polarized political climate. The Republicans want the minimum wage frozen at $7.25, and the Democratic Platform officially endorsed $15 an hour minimum wage in 2016. Nonetheless, I think it’s an idea we should discuss.
I read some time ago that while a reasonable person could certainly expect a higher minimum wage to have a negative effect on employment, that is not in fact what has happened when it has been tried.
You can only do so much with the EITC if you really want to impact people’s paycheck-to-paycheck budgets, which is what minimum wage advocates are trying to do. Unless you implement some kind of negative withholding, which sounds pretty complicated.
Correct me if I’m wrong, but I don’t think we have enough data to conclude that $15 an hour has no negative employment effect. We should at least prepare for the possibility that this well intentioned policy could backfire, and have other proposals on hand to help lower wage workers.
Perhaps we should parcel out the EITC on a month by month (or even biweekly) basis instead of an annual lump sum. The sum of money distributed could be based on the income earned the previous year.
A third alternative is to revise payroll taxes (SocSec, Medicare, etc.) so that the first $30,000 of income is not taxed (nor is the employer tax collected). Obviously this would cause a huge shortfall in funding. The shortfall should be made up with a carbon tax and by reviving that quaint Marxist concept: taxes on corporations and the rich.
A fourth alternative is to reduce employment costs by repealing the healthcare mandate and replacing it with “single payer.”
What you’re asking about is called Price elasticity of demand for unskilled labor. If |P[sub]D[/sub]| = 0, then wage level will have no effect on hiring; if |P[sub]D[/sub]| = 0.5 then a 10% increase in wages will lead to a 5% decrease in hiring, and so on. If |P[sub]D[/sub]| > 1 then the aggregate total of unskilled wages paid will fall when the minimum wage rises.
IIRC, |P[sub]D[/sub]| is known to be quite small at present wage levels, but probably significantly higher (though still much less than 1) if the minimum wage is taken to $15. Of course |P[sub]D[/sub]| will vary by industry and location.
So it wouldn’t be connected to taxes at all? It would just be money from the government that comes every so often? That’s…welfare. The whole point of the EITC is that it’s not welfare, no siree, just a little old tax cut.
Actually, it would be connected. You must have earned a certain amount of money the previous year.
Let’s get this straight: The EITC in it’s current form is already a handout. It’s just more politically palatable to give handouts to people who are working than to give handouts to people who are not working.
It’s a good thing the Social Security has accumulated $2.9 trillion dollar surplus and hasn’t had a deficit in a single year since 1981, and has never had a debt. Maybe we should stop accumulating a surplus in this fund, and add brackets to the FICA taxes like we have on regular income tax. It could even be the same exact brackets.
It’s hard to evaluate the OP without knowing precisely what the goal is. "lift up the poor " is a bit vague. Most people living in poverty are not working. Higher EITC might entice some of them into the workforce. But it doesn’t address the rest who maybe cannot work.
For those who do work, EITC has an advantage of targeting those in need where a minimum wage does not. For example, nobody in my household will suffer if they took a job earning $5/h, all else being equal. If you’re the sole earner, that’s a different story.
EITC avoids the much-maligned benefits cliff, where effective marginal tax rates can exceed 100%. However, that makes the program more expensive by sending funds to those who don’t really need them because they’re in the high-income region where the benefit ramps down.
As has been pointed out, EITC is temporally chunky. That could be changed, but I don’t know how complicated that would be.
I’m being vague on purpose because I’m open to a wide variety of policy options that will help the poor and reduce inequality. I’m not married to any particular idea, and I’m willing to accept imperfect ideas if they are more likely to actually pass Congress.
And the fifth alternative is some sort of minimum guaranteed income - which will incentive sitting on your butt, but will move some of our long term unemployment and disability because its the only thing available for the long term unemployed unless they know someone that can support them into a humane situation. (Also requires reviving the quaint Marxist concept).
(I’m not fond of raising the minimum wage because hours security is also a problem - a $15 an hour minimum wage doesn’t help if your employer only schedules you for three hours a week - or if there is no stability in your schedule that will permit a second job, making child care arrangements or going to school.)
The only thing protecting SS and Medicare currently is that they are “earned” benefits without strict means testing. If low-income people will get the benefits without having to pay in, half of that protection goes away. Dangerous for the long-term prospects for the program(s).
I hate to break the news to you but “SocSec is a Ponzi scheme” rants are that way, down the hall, preferably in BBQ Pit.
Or try the Search facility which will show that the right-wing meme you cite has been refuted over and over and over.
One very often quoted study found that a marginal difference in minimum wage in NJ and PA had no effect on low wage employment, in fact the opposite.
But ‘reasonable person’ expectation is obviously correct if you raise the min wage enough, it’s a question of when the obvious supply/demand relationship overrides any secondary effects in the other direction. No study is going to find that raising the min wage to $30/hr has no negative effect on employment.
The most recently widely debated study found a significant negative effect in the Seattle area from raising it to $13 as a part of a phased increase to $15. No one study, obviously, is the Gospel. But again it’s not really a question of whether you can seriously discourage employment with a higher and higher min wage. Obviously you can, it’s a matter of what effect at what level.
But on the original question yes on first economic principles, with no real reason to doubt it’s true in practice, more govt subsidy for the wages of people whose labor is worth ‘too little’ in the market is less costly to society overall than minimum wages, especially min wages as high relative to the median as now being discussed. But it’s politically more challenging than the apparent simple (and ‘someone else will pay, not you’) solution of high min wages.
Cutting the payroll tax for low wage people was an alternative mentioned. You might just eliminate it altogether and substitute a broad consumption tax like a VAT (carbon tax if you want to have two political debates at once, but which particular consumption tax isn’t really the point). A broad consumption tax isn’t any more regressive than the payroll tax to start with and you could make either less regressive with exemption/rebate. Likewise it’s having two somewhat different debates simultaneously to say that paying for old age pension/health should be just as progressively funded (very high % of the income tax paid by a relatively few people) as general govt services.
The point here is finding ways to reduce the cost of hiring people whose skills aren’t worth enough to command a ‘living wage’, it also being important to first recognize that that’s the problem, not ‘greed of employers’ or some -ism. Labor markets are real, and no natural law says people’s skills are worth a given minimum amount, though obviously most workers’ skills in today’s rich countries are worth wages never seen in history on a broad scale before the last century or so, which is the basic reason they are paid those wages. Employers have to pay those wages to access the now prevailing market for those skills.
The basic fact of there being no Social Security ‘surplus’ is just that, and hasn’t ever been refuted, because it’s obviously true on any basis except pure form over substance. When it gets to particular phraseology like ‘Ponzi scheme’, I at least partly agree, have at it in the usual political food fight.
But in politics-free substance, the SS admin ‘surplus’ is held in US govt securities. Those securities are a claim on the income and assets of US taxpayers. If the accounting was changed tomorrow to eliminate that asset on SSA’s balance sheet and eliminate the corresponding liability on the Treasury’s balance sheet, Social Security would have to be funded by…US taxpayers, same people who have to eventually pay back the bonds SSA now holds. There’s no substantive difference.
And questions of who should pay how much taxes are completely orthogonal to the point. You could change who pays off US treasuries, from general revenue, to being via a national sales tax. You could change the ‘separate’ FICA tax to all be paid by people who make more than $250k. But one way or another US taxpayers must pay all future promised SS benefits (barring invade another country and ‘take their oil’, or something) regardless of the accounting convention for SSA v the rest of the govt.
Where small countries have public pension assets consisting principally of claims on the companies and citizens of other countries (ie stocks and bonds issued by companies and govts of other countries) you can speak realistically of a public pension fund surplus, but not in the US case.